Blog Post

It is quite common that businesses have a distributed system of manufacturing units or service rendering units across the nation. In simple words, businesses with Head Offices (HO) and Branch Offices (BO) which are spread across the nation – could be in the same state or a different state. Under this system, in order to have better operational efficiency and control, usually businesses adopt centralized billing for procurement of common services at the HO. This situation leads to the accumulation of input tax credit paid on common inward supplies which are used by the branch units.

In order to avoid the aforesaid situation, the concept of Input Service Distributor (ISD) was introduced in CENVAT credit rules, which allows the HO to distribute the input tax credit to eligible units which are engaged in manufacturing or rendering of taxable services. The HO, which does the centralized billing for procurement of common services is termed as the ‘Input Service Distributor’.

In order to distribute the credit, the HO has to obtain a separate registration as an ISD, and file half yearly return.

As an ISD, the HO mainly performs the following:

Receives service tax invoice for availing common input services

Distributes the input tax credit to eligible units by issuing an invoice/challan, as required.

Input Service Distributor under GST

The concept of Input Service Distributor (ISD) is provided in GST too. It is defined as ‘an office of supplier of goods and/or services, which has received input services under the cover of tax invoice, and is allowed to distribute the said tax credit to the supplier of goods and/or services registered under the same PAN’. This indicates that the ISD is an office:

Which can be a head office, administrative office, corporate office, regional office, depot, and so on, belonging to registered taxable person who intends to distribute the credit

Which receives tax invoices towards the receipt of inward supply of services

Which distributes the tax credit paid of inward supplies of services to the branch units which have consumed the services, and issues invoices for the distribution of credit

Registration under GST

An ISD is required to obtain a separate registration. The registration is mandatory and there is no threshold limit for registration for an ISD. Businesses who are already registered as an ISD under the existing regime (i.e. under Service Tax), will be required obtain a new ISD registration under GST. This is because, the existing ISD registration will not be migrated to the GST regime.

Manner of Distribution

Under GST, on an intrastate transaction, CGST and SGST will be applicable. In case of transaction within a union territory, CGST and UTGST will be applicable. IGST will be applicable in case of interstate transactions and imports. The following are the scenarios of distribution of credit by an ISD:

ISD and the recipient of credit are located in the same state

ISD and the recipient of credit are located in different states

The unit to which the input tax credit is distributed is referred to as the ‘recipient of credit’.

ISD and recipient of credit are located in the same state

When the ISD and recipient of credit are located in the same state/union territory, the input tax credit of IGST, CGST, SGST, and UTGST should be distributed to the recipient in the following manner:

*Applicable on transactions within a union territory

Let us understand with an example.

Top-In-Town Home Appliances Ltd, is located in Bangalore, Karnataka. They also have units located in Mysore, Chennai and Mumbai. The unit in Bangalore is the Head Office and registered as an ISD. They do bulk procurement of common services which are used by the other units too.

Recipient of credit and ISD are located in different statesWhen the ISD and the recipient of credit are located in different states/union territory, the input tax credit of IGST, CGST, SGST, and UTGST should be distributed to the recipient of credit in the following manner:

The credit of CGST Rs. 9,000 and SGST Rs. 9,000 will be distributed to the Chennai unit as IGST, Rs. 18,000.

Return Forms under GST

Return Type

Frequency

Due Date

Details to be furnished

Form GSTR-6A

Monthly

0n 11th of succeeding month

Details of inward supplies made available to the ISD recipient on the basis of FORM GSTR-1 furnished by the supplier

Form GSTR-6

Monthly

13th of succeeding month

Furnish the details of the input credit distributed

The concept of ISD in GST is similar to the provisions existing under CENVAT credit rules and Service Tax. In this blog we have discussed about the fundamentals of an ISD in GST. Watch out for our next blog to know how to distribute the credit to the recipient of credit.

If the amount deducted is against some services rendered by Chit fund company and if it is in the course or furtherance of business, you can treat as ITC and can be shown under 4(5) of Form GSTR-3B. Else it will your expenses.

Dear Sir,We have RO at Cochin and Ho at Mumbai. We deal in software services both in export as well as domestic. All the invoices, and compliances are handled by Mumbai office. How can we transfer ITC from cochin to mumbai office. Please clarify.

Case 1 : Our MD uses Jet Privilage card and most of his tickets are booked through his card and earns points (JP miles). The tickets submitted does not specify IGST/CGST/SGST. How GST is charged on passengers. How they classify whether Intra/Inter State?

Case 2We use our travel agent to book our official train tickets. Agent will raise invoice adding ticket cost & his service charges (say Rs 200 per tatkal). He will charge GST only on his service charges (Rs 200) Tickets will be in name of our traveler(employee) and invoice will be raised on Company

Now, how to claim the ITC suffered on the ticket. Are the agents are empowered to pass on the GST suffered on tickets to me by charging GST on ticket charge+his service charges? and claim as ITC

Case 3Employees buy tickets of their own and then submit the tickets for reimbursement. How to claim ITC on such tickets.

Is this explanation stands void for travel agency too which is into providing services of booking hotel rooms ? If a hotel is located in Goa, Head office of booking agency is in Delhi , can we open an ISD in Goa and avail Input credit for head office using ISD ?

If yes…. Incase we are selling that service to another travel agent (b2B) can we pass that credit to that travel agent aswell ?

How do we enter Packing & Forwarding Charges in Tally Sale Invoice under GST also how do we enter Cartage amount which we charge in Invoice. Please show the process of Creating of Ledger under which group?

i have a registration in kanpur for services and i want to host an event in bangalore so how will be the credit flow of taxes, i donot have any registration in bangalore.a.if i want to host events in different states do i need registration in all states and show kanpur as ISDb.what will be the tax flow.

If i stays in hotel for business purpose in Rajasthan and Gujrat and pay CGST and SGST, can i take set off of these credit against my Maharashtra’s output Liability. As i can not transfer CGST and SGST from one state to another state. so for this i have to take ISD registration for Gujrat and Rajasthan for transfer of ITC where i have no place of business available in Rajasthan and Gujrat. how to manage this type of situations and problems..

Top-In-Town Home Appliances Ltd, is located in Bangalore, Karnataka. They also have units located in Mysore, Chennai and Mumbai. The unit in Bangalore is the Head Office and registered as an ISD. They do bulk procurement of common services which are used by the other units too.

In case of services business :- Scenario – Head office Mumbai places order for software and installed at head-office. Branch / Factory and Sales offices are in Bangalore and Chennai. How can we take input credit on out put taxes (sales ) occured in Bangalore and Chennai?Can you explain this please?

Is ISD registeration also open for the current period 1st june to 15th june. As we have all our Business locations in Uttarakhand and just one showroom in New Delhi , do we also need to get registered under ISD

In case a R&D unit in one state and factories are situated in more than one state, then R&D is to be classified as ISD. If so can the same be included along with HO ISD or separate Registration is required

A query: Is it mandatory that a co. having HO in West Bengal & branches in other states & having common input services has to get registered as ISD under GST law & only then it can utilize/DISTRIBUTE ITC?Or is it open to the co.’s HO not to take registration as ISD under GST law & to utilize entire ITC itself without distributing it to branches ?